By William Lazonick, The prevailing stock market ideology enriches value extractors, not value creators. Conventional wisdom holds that the primary function of the stock market is to raise cash that companies use to invest in productive capabilities. The conventional wisdom is wrong. Academic research on corporate finance shows that, compared with other sources of funds, […]
An interesting take on the reasons for the continued weakness of investment and growth in the aftermath of the Great Recession. For Marxist Michael Roberts, it is mostly about the failure of the rate of profit to recover to pre-recession levels. The link to his post is below.
Recently, Larry Elliott, the economics correspondent of the British liberal newspaper, The Guardian raised again the puzzle of the gap between rising corporate profits and stagnant corporate investment in the major capitalist economies. Elliott put it “The multinational companies that bankroll the WEF’s annual meeting in Davos are awash with cash. Profits are strong. The return on […]
Since taking office Trump has proved unpredictable, but what are the likely outcomes of his policies? His executive orders aside, he has not had it all his own way, despite Republican majorities in both houses of Congress.
Yesterday I outlined the economic causes of the rise to power of this ostensibly populist president. This post reviews some of the potential consequences of Trump’s economic policies, as discussed in the book Trumponomics.
Jobs and growth
The centrepiece of Trump’s economic strategy, if in fact it has any coherence at all, is a pledge to put ‘America first’ and raise the growth rate of the US economy from its currently sluggish 2% per annum, to something like 4%. In doing so, he has promised that this will create 25 million jobs over ten years.
The pledge on jobs, if it is achieved, would in fact be nothing special when looking at the US record since the last recession. Continue reading
Economic prosperity has its downsides. In the UK, London and the South East have proved to be the most dynamic parts of the country in generating income and wealth in recent decades. But the way such outcomes have been managed has left these regions with a now all too familiar problem: congestion.
It is not just the roads. There is also a housing shortage, which has contributed to soaring house prices, particularly in London, where average prices have roughly doubled since the recession.
There are different ways to look at these kinds of outcomes. We could call them symptoms of ‘overcrowding’: there are too many people. Alternatively one could praise the job-creating capacity of the UK economy, and particularly in these regions. Job-creation attracts workers from other regions of the country, as well as from abroad; immigration plays a role. Continue reading
These telling extracts from Ha-Joon Chang‘s 23 Things They Don’t Tell You About Capitalism come from ‘Thing 7’ (p.63-5):
“Contrary to what is commonly believed, the performance of developing countries in the period of state-led development was superior to what they have achieved during the subsequent period of market-oriented reform. There were some spectacular failures of state intervention, but most of these countries grew much faster, with more equitable income distribution and far fewer financial crises, during the ‘bad old days’ than they have done in the period of market-oriented reforms. Moreover, it is also not true that almost all rich countries have become rich through free-market policies. The truth is more or less the opposite. With only a few exceptions, all of today’s rich countries, including Britain and the US – the supposed homes of free trade and free markets – have become rich through the combinations of protectionism, subsidies and other policies that today they advise the developing countries not to adopt. Free-market policies have made few countries rich so far and they will make few rich in the future.”
To illustrate the above, a brief country case study:
“[This] country’s trade policy has literally been the most protectionist in the world for the last few decades, with an average industrial tariff rate at 40-55 per cent. The majority of the population cannot vote, and vote-buying and electoral fraud are widespread. Corruption is rampant, with political parties selling government jobs to their financial backers. The country has never recruited a single civil servant through an open, competitive process. Its public finances are precarious, with records of government loan defaults that worry foreign investors. Especially in the banking sector, foreigners are prohibited from becoming directors while foreign shareholders cannot even exercise their voting rights unless they are resident in the country. It does not have a competition law, permitting cartels and other forms of monopoly to grow unchecked. Its protection of intellectual property rights is patchy, particularly marred by its refusal to protect foreigners’ copyrights…
…[the country described above]…is the USA, around 1880…one of the fastest-growing – and rapidly becoming one of the richest – countries in the world…[following] policy recipes that go almost totally against today’s neo-liberal free-market orthodoxy.”
This video tells the story of how a relatively equitable capitalist growth model in the 1950s and 60s gave way to rising inequality and weaker investment. For Professor William Lazonick, the economy of the US (and other advanced nations) currently generates “profits without prosperity”.
After World War II, average wages across the economy tended to increase in line with productivity, so that ordinary workers shared in rising economic efficiency over time. However, since the 1970s, the link has been broken as productivity continued to rise, while wages stagnated. This trend has been largely sustained to the present day.
The video discusses these changes in the US economy, and focuses on the phenomenon of stock buybacks, which shift firm resources away from productivity-raising investment in new technology and a more highly-skilled workforce towards short-term financial gains for CEOs and investors. Lazonick discusses possible solutions to these problems.